WARCHEST- best way to build it up

[psychocandy]

Surely best plan is to take max out until you get to the upper tax bracket for the year. Dont spend it all and stick remainder in savings account?

If you take too much out you;re going to end up paying higher rate tax...

Then whats left in the company can be taken out in subsequent tax years if necessary if you have a bad time (and pay no more tax on it).

Although what happens if in say year 1, you leave 7K in the company? you'd pay 20% CT because its still profit.

OK. Year 2 no income at all. You pay yourself £7K salary out of that money left. But you've already paid CT on that money? and this year you're in effect at a 7K loss. Do you get the previously paid CT back?

Must admit I cant see the value in leaving too much in company account though. (although if you could reclaim CT in the above example it might be worth it).

although I;m guessing continuing to pay yourself a salary in the following year would preclude you from claiming any sort of benefit like JSA. Not that its that much mind.

[craig1]

Surely best plan is to take max out until you get to the upper tax bracket for the year. Dont spend it all and stick remainder in savings account?

If you take too much out you;re going to end up paying higher rate tax...

Then whats left in the company can be taken out in subsequent tax years if necessary if you have a bad time (and pay no more tax on it).

Although what happens if in say year 1, you leave 7K in the company? you'd pay 20% CT because its still profit.

OK. Year 2 no income at all. You pay yourself £7K salary out of that money left. But you've already paid CT on that money? and this year you're in effect at a 7K loss. Do you get the previously paid CT back?

Must admit I cant see the value in leaving too much in company account though. (although if you could reclaim CT in the above example it might be worth it).

You can carry losses forward into the next accounting year, much like you can retain profits. Alternatively, you can carry your loss back to the preceding accounting year and get a CT refund.

[Mehmeh]

I split the divi income with MrsB up to the tax limit and leave enough in the co to cover salary and pension. A good chunk of the cash that comes out goes into the offset mortgage. Money is there for bench periods and the effective rate of interest is better than I'd get on an instant access account or ISA.

Do you mean money in the company account or in your offset that is better than you would get in an instant access account??

[Mehmeh]

I have always taken up to the 40% out as dividends and left the rest in the company account.

Only problem is that it's starting to mount up, and I think I might be better off taking out most of it this tax year and pay the extra money in tax on the dividends.

You only pay 22.5% on dividends over the higher rate correct? due to the 10% credit?

This will mean I can invest/save this cash instead of it earning 0.0001% in my Business Account, also I'm worried that I will go into the mega Higher rate if I leave it in there any longer and suddenly need the lot...maxing out up to the 40% rate is now looking wise due to the new 50% rate.

Thoughts?

[psychocandy]

You can carry losses forward into the next accounting year, much like you can retain profits. Alternatively, you can carry your loss back to the preceding accounting year and get a CT refund.

Cool. So that £7K would be usable as tax free for a zero income year.

[lje]

I have always taken up to the 40% out as dividends and left the rest in the company account.

Only problem is that it's starting to mount up, and I think I might be better off taking out most of it this tax year and pay the extra money in tax on the dividends.

You only pay 22.5% on dividends over the higher rate correct? due to the 10% credit?

This will mean I can invest/save this cash instead of it earning 0.0001% in my Business Account, also I'm worried that I will go into the mega Higher rate if I leave it in there any longer and suddenly need the lot...maxing out up to the 40% rate is now looking wise due to the new 50% rate.

Thoughts?

You have already paid around 20% corporation tax on the profit so the additional 22.5% is on top of that (roughly - the 10%tax credit changes things slightly). It may be worth paying if you'd like to take the money out and use it for other things.

How likely are you to suddenly need access to all of the money? If not likely then the 50% tax bracket shouldn't be an issue.

Have you thought about paying a chunk of the money into a pension? Then you could get back the Corp Tax you paid on it.

At the very least if you are keeping it in the company then I hope you have found a high earning business savings account (well - as high as you can get anyway...).

If you close your company at any point you might be able to take it all out at 10% with entrepreneur's relief - but only if you don't start up another similar company straight away.

[MrRobin]

I do the same as most on here - pay sal + div up to the 40% rate threshold and the rest sits in the company account. It is getting up to a nice princely sum now which is reassuring for any extended bench time or for later extraction via ER

However, as some have mentioned already on this thread, there are 2 problems... one is that it's earning a pittance in interest and the other is that tax laws can change and the money may end up being further taxed in future. I am considering taking up to the threshold where the personal allowance starts to be removed (60% effective tax) and take the 25% hit on extra dividends now, but what to do with the money??

[Pondlife]

but what to do with the money??

Offset mortgage
Fixed rate bonds
Small island off the welsh coast

[psychocandy]

You have already paid around 20% corporation tax on the profit so the additional 22.5% is on top of that (roughly - the 10%tax credit changes things slightly). It may be worth paying if you'd like to take the money out and use it for other things.

How likely are you to suddenly need access to all of the money? If not likely then the 50% tax bracket shouldn't be an issue.

Have you thought about paying a chunk of the money into a pension? Then you could get back the Corp Tax you paid on it.

At the very least if you are keeping it in the company then I hope you have found a high earning business savings account (well - as high as you can get anyway...).

If you close your company at any point you might be able to take it all out at 10% with entrepreneur's relief - but only if you don't start up another similar company straight away.

Can you retrospectively bung loads into a pension after you've paid CT on it as profits then?

So, if you close the company, you pay 10% possibly on whats left (even though you've already paid 20% CT on it) ?

[lje]

Can you retrospectively bung loads into a pension after you've paid CT on it as profits then?

So, if you close the company, you pay 10% possibly on whats left (even though you've already paid 20% CT on it) ?

I don't know the details of entrepreneur's relief but there are lots of threads on here discussing it so you should be able to find the details.

Yes - you can reclaim CT you paid before, reduce this year's CT or carry forward a loss to allow against CT next year. You can pay up to £50k a year into your pension. In fact at the moment you can carry forward unused allowance from the previous 3 years too making a total of £200k (although I'm not sure if you can do that as a company or whether you would need to take out a dividend and then get the tax relief when you pay it into pension).